Volkswagen will replace the naturally aspirated inline-five motor used in U.S. products with a turbocharged 1.8-liter four-cylinder in a move designed to boost fuel efficiency and decrease manufacturing costs.

Two sources at Volkswagen confirmed the change in the German automaker’s powertrain lineup to Car and Driver. The new engine, code named EA888, is a derivative of the corporate 2.0-liter turbo four used in a wide variety of VW and Audi vehicles. Unrelated to VW’s “1.8T” mill used in the 1990s and 2000s, the 1.8-liter turbo has the potential to return highway mileage close to the magic 40 mpg number favored by marketing types and consumers alike. In contrast, the 2.5-liter inline-five mustered just 33 mpg on the highway in the manual-transmission Jetta.

Power for the new motor will be comparable to the inline-five despite the increased fuel economy. Compared with 170 horsepower and 177 lb-ft of torque served up by the five-banger, the 1.8-liter turbo makes 158 horsepower and 185 lb-ft of twist in European applications, and those numbers shouldn’t change much when the mill is offered stateside.

Because of its close relationship to the ubiquitous 2.0-liter turbo, the new engine can be built in the same factories and maintained with the same equipment, saving Volkswagen time and money.

Expect the 1.8-liter turbo to eventually become the volume motor in the Jetta, Golf, Beetle and Passat.

Volkswagen R&D boss Heinz-Jakob Neusser used this month’s Vienna Motor Symposium to reaffirm his company’s plans to introduce a 10-speed DSG dual-clutch transmission. Development of the advanced transmission was first announced at the Austrian event a year ago by VW Group CEO Martin Winterkorn and now Neusser has provided a few extra details.

The new 10-speed DSG will serve as a replacement for the aging six-speed unit used in VW’s larger vehicles, and will be able to handle torque loads of up to 369 pound-feet. It has been designed for both transverse and longitudinal engine applications, which, as Autocar points out, suggests it will eventually be used in a wide range of models across multiple VW Group brands.

The transmission is said to be part of VW’s overall strategy to boost the efficiency of its lineup by as much as 15 percent by the end of the decade. Unfortunately, Neusser made no mention of when the new 10-speed DSG might be introduced.

Neusser did, however, confirm that a new twin-turbocharged 2.0-liter diesel four-cylinder will be introduced later this year with the arrival of the next-generation version of the Passat the rest of the world enjoys. The new engine, which will still be labeled a TDI, will develop as much as 236 horsepower. By comparison, the most powerful 2.0-liter TDI currently offered in the States musters up a peak 150 hp.

VW sister brand Audi also used the Vienna Motor Symposium to announce a new 3.0-liter TDI delivering 272 hp.

The Environmental Protection Agency has ordered recall of about 482,000 Volkswagens and Audis with four-cylinder diesels as the agency investigates software-operated kill switches that circumvent emissions standards for air pollutants, specifically nitrous oxide (NOx) emissions. It issued a notice of violation (NOV) to Volkswagen AG, Audi AG and Volkswagen Group of America that could potentially lead to a recall of the cars, which include the 2009-15 Volkswagen Golf, Jetta and Beetle, 2014-15 VW Passat and 2009-15 Audi A3.

VW Group faces potential fines of up to $18 billion for the approximately 482,000 cars sold with the 2.0-liter TDI turbocharged four-cylinder diesel, based on a per-car maximum fine of $35,500. So far, EPA has not sought an injunction to stop the sale of 2015 TDI models, though the agency adds that “it is incumbent upon Volkswagen to initiate the process that will fix the cars’ emissions systems.”

“Every automaker has to meet the same standard,” said Janet McCabe, acting assistant administrator for the EPA Office of Air & Radiation. “These cars are up to 90 percent cleaner because of the standard.”

Owners of the 482,000 cars do not have to take action until receiving a recall notice, and the cars are safe and legal to operate in the meantime, the EPA added.

The investigation began when the California Air Resources Board (CARB) “was engaged in dialogue with our European counterparts concerning high in use emissions from light duty diesels,” CARB, which has its own testing lab, said in a letter to VW Group of America’s legal counsel. “CARB deployed a number of efforts using portable measurement systems and other approaches to increase our understanding for the California fleet. In 2014, the International Council for Clean Transportation and West Virginia University identified through their test program, and brought to CARB’s and [EPA’s] attention, concerns of elevated NOx emissions over real world driving.”

“It’s no secret that California has unique challenges when it comes to air quality,” CARB board executive officer Richard Corey said in a press conference call with EPA officials Friday. NOx “cooks ozone.” It can cause asthma and other illnesses, the EPA’s McCabe said.

Corey said the European agency tipped off CARB about the problem, and that VW has admitted a “defect.” “This appears to be a very serious violation,” he added.

VW Group of America acknowledged the investigation in a statement released Friday. “VW is cooperating with the investigation; we are unable to comment further at this time,” the company said through a spokesman.
Corey declined to comment on the potential motives of installing a “kill switch” in VW and Audi diesels, though potentially the diesels run more smoothly and quickly, and achieve higher fuel efficiency, with NOx controls turned off.

McCabe, of the EPA, said the controls cut 90 percent of NOx particulate emissions when operating. VW’s “kill-switch” software, the EPA alleges, can determine whether or not a car is being tested by the steering wheel angle, the vehicle’s speed and by barometric pressure, said Cynthia Giles, the agency’s assistant administrator for the Office of Enforcement and Compliance Assurance.

What does this mean for you and for VW? Volkswagen and General Motors, with the Chevrolet Cruze and Colorado, and GMC Canyon, and Chrysler with the Ram 1500 pickup are the only non-premium brands that offer diesel engine options in the U.S. For VW, the diesel take-rate has reached up to 25 percent of U.S. sales in a given month, though recently, low gasoline and diesel fuel prices here have blunted such sales. This investigation, and a potential recall and fine for VW certainly will threaten the future of “clean diesel” passenger car sales in the United States.


Read more: EPA Accuses VW of Violating Emissions Rules with Diesel Engines

Volkswagen shares fell over 20 percent on Monday, after it told U.S. dealers to halt sales of some 2015 diesel cars, following regulators' discovery that software it designed for the vehicles gave false emissions data.

The company said on Sunday that it had launched an investigation.

In a statement published by the carmaker on Sunday, Chief Executive Officer Martin Winterkorn said, "I personally am deeply sorry that we have broken the trust of our customers.

"Volkswagen has ordered an external investigation of this matter," he said.

German authorities are set to probe Volkswagen for similar emissions manipulation in Germany, according to Dow Jones.

Volkswagen must now work closely with U.S. authorities, the German Transport Ministry spokesperson told newswires, adding that they expect the company to deliver reliable information.

Meanwhile, Vice Chancellor and Economy Minister Sigmar Gabriel told Reuters he was concerned about the "excellent" reputation of German carmakers, saying Volkswagen's emissions manipulation was a "bad incident," according to Reuters. Gabriel also called on the company to fully clear up the egregious claims.

VW could face civil penalties of $37,500 for each vehicle not in compliance with federal clean air rules. Some 482,000 four-cylinder VW and Audi diesel cars sold since 2008 are involved in the allegations.

The U.S. Environmental Protection Agency (EPA) said on Friday the software deceived regulators measuring toxic emissions, adding that Volkswagen could face fines of up to $18 billion as a result.

Volkswagen is currently listed on both the European and global Dow Jones Sustainability Indices (DJSI), and was earlier this month deemed the most sustainable automaker among its indexed peers.

In a September 11 press release, Winterkorn said the award was evidence that the group was on its way to being the "world's most sustainable automaker."

A spokesperson for RobecoSAM, an international green investment group which puts together the DJSI along with S&P Dow Jones Indices, told CNBC Volkswagen's situation was being "closely monitored."

"Should the DJSI Index Committee come to the conclusion that Volkswagen AG is not eligible anymore for the DJSI, all market participants will be informed simultaneously," RobecoSAM's spokesperson explained in an email.

Volkswagen shares plunged more than 20 per cent on Monday, their biggest one-day fall, after the German car maker admitted it had rigged emissions tests in the United States, and U.S. authorities said they would widen their probe to other manufacturers.

Germany, alarmed at the potential damage the scandal could inflict on its world-beating car industry, urged Volkswagen to fully clear up the matter and said it would investigate whether emissions data had also been falsified in Europe.

“You will understand that we are worried that the justifiably excellent reputation of the German car industry and in particular that of Volkswagen suffers,” German Economy Minister Sigmar Gabriel said.

BERLIN — The crisis enveloping Volkswagen AG, the world’s top-selling carmaker, escalated Tuesday as the company issued a profit warning following a stunning admission that some 11 million of its diesel vehicles worldwide were fitted with software at the centre of a U.S. emissions scandal. In Canada, a law firm has launched a class-action lawsuit against the carmaker.

In a statement, the German company said it was setting aside around 6.5 billion euros ($9.6 billion Cdn.) to cover the fallout from the scandal that is tarnishing VW’s reputation for probity, raised questions over the future of its CEO Martin Winterkorn and seriously battered its share price.

In the wake of its statement, VW’s share price was down another 18.7 per cent at 108.75 euros and near a four-year low. The fall comes on top of Monday’s hefty 17 per cent decline and means the company has lost an eye-watering 25 billion euros ($37 billion Cdn.) or so in just two days of frenzied trading.

The trigger to the company’s market woes was last Friday’s revelation from the U.S.’s Environmental Protection Agency that VW rigged nearly half a million cars to defeat U.S. smog tests.

The company then admitted that it intentionally installed software programmed to switch engines to a cleaner mode during official emissions testing, and apologized for it. The software then switches off again, enabling cars to drive more powerfully on the road while emitting as much as 40 times the legal pollution limit.

In its statement Tuesday, Volkswagen gave more details, admitting that “discrepancies” related to vehicles with Type EA 189 engines and involved some 11 million vehicles worldwide.

“A noticeable deviation between bench test results and actual road use was established solely for this type of engine,” it said. “Volkswagen is working intensely to eliminate these deviations through technical measures.”

To cover the necessary service measures and what it says are “other efforts to win back the trust of our customers,” VW said is setting aside some 6.5 billion euros in the current quarter. There was no mention of any fines or penalties. The EPA has indicated that it could, in theory, fine VW up to $18 billion (U.S.).

The costs, VW conceded, may be subject to revaluation in the light of ongoing investigations. As a result, it said 2015 earnings targets will be adjusted but it didn’t specify by how much.

The company added that the software is also installed in other vehicles with diesel engines but that that for the “majority of these engines the software does not have any effect.”

Volkswagen said that new vehicles with EU 6 diesel engines currently on sale in the European Union comply with legal requirements and environmental standards.

The company’s statement was clearly a shock in the markets, not least the number of vehicles involved, which is more than VW’s 2014 sales of around 10 million vehicles.

Christian Stadler, professor of strategic management at Warwick Business School, said he was surprised at the scale of the VW’s potential infringement but noted that companies which transgressed U.S. regulations rarely pay the full fine that local authorities say could be imposed.

“I don’t think this is a life-threatening event but it’s clear it’s going to be very expensive,” he said.

VW’s troubles appear to be escalating around the world.

Merchant Law Group LLP, with 10 offices in Canada, announced it's filing a national class action over the emissions scandal.

“VW had marketed its diesel-powered cars as being better for the environment,” the law firm said in a statement.

South Korea said Tuesday it would investigate emission levels of Volkswagen diesel vehicles in the wake of the rigging scandal in the U.S. that has heaped pressure on Winterkorn. The German government is to also conduct new emissions tests in VW’s diesel cars, while France called for a wider Europe-wide investigation into Volkswagen’s practices — and into those of French carmakers.

And German Chancellor Angela Merkel demanded “full transparency” from the company.

“I hope that the facts will be put on the table as quickly as possible,” she said in Berlin.

Even before Tuesday’s statement, a member of Volkswagen’s supervisory board suggested that heads will roll in the wake of the scandal, though he said it was too soon to start assigning blame.

Speaking on Germany’s Deutschlandfunk radio, Olaf Lies cautioned against “over-hasty calls for resignations.”

Lies, who is also the economy minister of the German state of Lower Saxony, which holds a 20 per cent stake in Volkswagen, said he was sure there would be “personal consequences” once the investigation is complete.

The company announced in early September that it planned to give Winterkorn a two-year contract extension which would keep him in charge through the end of 2018. The plan was for the extension to be approved at a supervisory board meeting on Friday.

Winterkorn, who has been CEO since 2007, emerged on top of a power struggle earlier this year with longtime board chairman Ferdinand Piech, who resigned in April.

The shockwaves from the scandal enveloping Volkswagen were being felt far and wide across the sector as traders wondered who else may get embroiled. Germany’s Daimler AG, the maker of Mercedes-Benz cars, was down 6 per cent, while BMW AG fell 5.3 per cent. France’s Renault SA was 5.5 per cent lower.

“It’s an auto sector shaking incident,” said Connor Campbell, a financial analyst at Spreadex.

When the International Council on Clean Transportation began to look into discrepancies in the emissions of several Volkswagen diesel vehicles in early 2014, it was with the sincerest of intentions. Noting that the U.S. had stricter and more rigorously enforced emissions laws that Volkswagen’s TDI-equipped cars routinely passed without problems, the ICCT figured performing some tests on U.S. soil would provide them with a good control model. Enlisting the help of West Virginia University’s Center for Alternative Fuels, Engines, and Emissions (CAFEE) to assist with the real-world testing, it seemed the data would soon reveal the root of the inconsistencies. But when the results gathered via real-world testing were compared with the compliant numbers generated in the lab by the California Air Resources Board (CARB), it was clear something wasn’t kosher in dieselburg.

To shed some additional light on the situation, C/D spoke with Daniel Carder, interim director of CAFEE, and Dr. Arvind Thiruvengadam, research assistant professor of CAFEE. Both were participants in the testing sessions where the discrepancies were first discovered, and they replied candidly.

Armed with several of its Portable Emissions Measurement Systems (PEMS), CAFEE hit the road in a number of VW diesels—as well as a diesel BMW X5, according to a report in Bloomberg—to compile some real-world road-test emissions numbers for comparison with the CARB numbers, which fell fully within the accepted levels of NOx emissions. Before long, it was obvious that something was terribly wrong: The Jetta exceeded the U.S. nitrogen-oxide emissions standard by 15 to 35 times, and the Passat by 5 to 20 times. The X5 passed.

The 2010 Volkswagen Golf TDI is among the vehicles cited by the EPA.
According to Thiruvengadam, when the teams began comparing data, their first response was, “That’s not right,” and they immediately started accusing each other of forgetting a crucial procedure or step that could have corrupted the data. Only after double- and triple-checking their work for accuracy did they begin to look to the vehicles for an explanation. “We were amazed,” he says. “The engine software had to be responsible.” Carder added: “When a car is working nicely in the field but the NOx emissions findings increase by a factor of 15 to 35 times over the CARB testing results, it’s clear that there are some software strategies at work.”

“Developing an engine software to optimize certain aspects of an operation cycle that you know the parameters of is a challenge, but it is very possible,” says Thiruvengadam. “Knowing when to switch to the EPA-favorable cycle is the trick; it could be set up to detect the absence of steering-wheel movement, or, and this is known, we often turn off the traction control for testing purposes.” Either way, the result is the same: it turns the emissions controls on for EPA testing and off for real-world driving. Somewhat ironically, the presumed benefits of turning off the controls for normal driving include improved fuel economy and engine power.

Both Thiruvengadam and Carder state that, to their knowledge, no external devices were employed, and the so-called “defeat device” was entirely software related. Thiruvengadam called the software “very sophisticated in design and operation” and said it would be “highly unlikely that even the most perceptive drivers would ever be able to sense it activating or deactivating.”

Armed with this info, CARB and the U.S. Environmental Protection Agency opened an investigation into Volkswagen in May 2014, which resulted in many attempts by VW to replicate the West Virginia University results. In December of 2014, VW said it had a fix and recalled nearly 500,000 diesels in the U.S. for a software patch. But while VW held its breath, CARB continued to test Volkswagen diesels on a regular basis and found that the cars were still exceeding the state’s nitrous-oxide-emissions limits. CARB made its finding known to both Volkswagen and the EPA on July 8.

Only when Volkswagen learned that the certification of some of its 2016 model-year cars was partially dependent on the maker fully responding to lingering questions over the older cars’ real-world tailpipe emissions did the maker begin to respond in earnest. After weeks of receiving unsatisfactory replies, the agencies in question let VW know that several of its diesel models would not be certified for 2016. Volkswagen did not respond to C/D inquiries for comment.

With the prospect of not being allowed to sell diesels in the U.S. (current estimates indicated diesels make up about 25 percent of Volkswagen’s U.S. sales), the maker finally retreated and admitted it had knowingly installed a “sophisticated software algorithm” that permitted the diesels to reduce the amount of NOx emissions while undergoing testing.

When asked if they thought other carmakers might be engaging in the same deceptive practices for the purpose of passing stringent emissions testing or to inflate fuel-economy numbers, Carder and Thiruvengadam chuckled simultaneously. “Maybe, but it’s not fair to speculate at this point,” Carder said. “I hope not, as science nerds like us don’t usually get this many phone calls.”